In a clash between Fast-Moving Consumer Goods (FMCG) distributors and Hindustan Unilever (HUL), distributors express discontent and resistance against the company’s recent adjustments to the margin structure. Allegations are rife that HUL is pursuing a profit-centric agenda at the expense of its distributors. The All India Consumer Products Distributors Federation (AICPDF) has raised concerns about HUL’s decision to reduce distributor margins, particularly in the face of sluggish sales growth and challenging market conditions.
According to reports, HUL, the conglomerate behind popular brands like Lux, Lifebuoy, Surf Excel, Rin, Pond’s, and Dove, has implemented a 60 basis points reduction in fixed margins while simultaneously increasing variable margins for distributors by 100 to 130 basis points. This move has sparked discontent within the distributor community, leading to discussions within the AICPDF about potential countermeasures. The federation is contemplating actions such as halting purchases, a strategy employed in the past to address similar concerns in the industry.
The AICPDF strongly opposes HUL’s margin adjustments, labeling it a double standard approach seemingly driven by a draconian agenda to enhance company profitability. The association claims to represent over 4 lakh distributors and stockists across India, expressing fears that the new strategy may jeopardize the entire distribution network by pressuring distributors to compromise their rightful margins.
FMCG companies typically provide fixed and variable margins as incentives to their distributors, with fixed margins remaining constant and variable margins subject to performance-related fluctuations. These incentives play a crucial role in supporting FMCG companies’ extensive distributor networks.
Earlier in January 2023, HUL had announced an 80 basis points increase in the royalty fee paid to its parent company, Unilever Plc, over a three-year period. This marked the first such increment in a decade, impacting agreements related to technology, trademark licenses, and central services established with the parent company in January 2013 for a duration of 10 years. The clash with distributors now adds another layer of complexity to HUL’s recent strategic decisions.
